Technical material for your study purposes.

Taxation 2017/18 

Personal Allowances

• Everyone is allowed to have £11,500 of their income without paying tax.
• The personal allowance is reduced to zero for any person earning over £100,000 P/A, this applies at any age (this is reduced by £1 for every £2 over £100,000).
• Marriage allowance: £1,150 transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse/civil partner who is a NTP can transfer 10% of their personal allowance (£1,150) to their BRT payer spouse or civil partner. Does not apply if partner a HRT or ART payer. This must be applied for.
• Married couples allowance: Maximum allowance £844.50 to minimum allowance £326. Must be married and one must have been born before 1935. If married after 5^th December 2005 the highest earner can claim. Means tested.
• Blind persons allowance an extra £2,320 on top of the basic allowance. It can be transferred to spouse if unused.

Certain deductions can be taken from income before the personal allowance is applied:

• Pension contributions (employed and self-employed)
• Allowable expenses:
  • Self-employed: must be ‘wholly + exclusively for the purpose of trade’
  • Employed: must be ‘wholly, exclusively + necessarily’ while doing the job. 

After the personal allowance the next:

• £0 – £33,500 = 20% (Basic rate tax payer: BRT)
• £33,501 – £150,000 (£118,000) = 40% (Higher rate tax payer: HRT)
• £150,000+ = 45% (Additional rate tax payer: ART)

Personal allowances

     NTP                      BRT                            HRT                          ART                      

---

                          (Next £33,500)

£0 ——– £11,500 ————–£45K————————–150K————————————————-

       

      0%                  20%                           40%                               45%

New rules on dividends from 2016

• From April 2016, taxpayers with total dividend income of no more than £5K will pay no tax
• Dividends received by an investor will be tax free up to £5K after the personal allowance
• Irrespective of the individuals tax band, the first £5K of dividends will always be tax free.
• Dividend income above £5K will be:
  • 7.5% within the basic rate band
  • 32.5% within the higher rate band
  • 38.1% in the additional rate band.

Investment Income: The starting rate of 0% only applies to savings and fixed income (FI) up to £5,000 after the personal allowance. Does not apply if taxable income from work/pensions exceeds £5K

HMRC Income tax: order of priority

1. Non-savings income: Work, pensions in receipt
2. Savings income: Savings/FI/Rental income (only savings/FI qualifies for 0% savings rate on £5,000 after the P/A). Not available if non-savings income exceeds the p/a plus £5K
3. Dividend income: Income from shares
4. Investment life policies: Chargeable gains made on certain life policies (i.e. Endowments)

Abbreviations

• NTP: Non tax payer
• BRT: Basic rate tax payer
• HRT: Higher rate tax payer
• ART: Additional rate tax payer